Major Issue with Wife's Vanguard IRA - please help

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Post Reply
abs9986
Posts: 55
Joined: Sun May 20, 2012 7:25 pm

Major Issue with Wife's Vanguard IRA - please help

Post by abs9986 » Sat Jun 02, 2018 9:45 am

I recently was checking my account balance via Mint and noticed that my wife's Vanguard IRA was showing as traditional rather than roth - Vanguard's site shows the same. I am like 99.999% sure that her account was set up as a roth, not traditional. I even checked the tax forms for the previous 5 years (2013 - 2017) on vanguard and they all show as traditional. There is no way I could I have missed this between checking my account balances monthly, the fact that my IRA is a roth, and doing taxes every year.

I plan to call vanguard first thing Monday. Has this ever happened to anyone else? If for some reason my wife's accounts were set up as traditional the past 5 years (again very unlikely), do we have any recourse to change our taxes? In turbotax, my wife's IRA was declared as roth so we obviously did not get the tax break. Again, I would thank the IRS would flag that if vanguard submitted as traditional and I submitted as roth on tax form.

jebmke
Posts: 8281
Joined: Thu Apr 05, 2007 2:44 pm

Re: Major Issue with Wife's Vanguard IRA - please help

Post by jebmke » Sat Jun 02, 2018 9:50 am

Do you still have the VG application forms? That should show what was created.
When you discover that you are riding a dead horse, the best strategy is to dismount.

Nate79
Posts: 3325
Joined: Thu Aug 11, 2016 6:24 pm
Location: Portland, OR

Re: Major Issue with Wife's Vanguard IRA - please help

Post by Nate79 » Sat Jun 02, 2018 10:43 am

Well since Vanguard isn't going to change your 2013-2017 tax forms it seems that you indeed have missed it for years.....

aristotelian
Posts: 4600
Joined: Wed Jan 11, 2017 8:05 pm

Re: Major Issue with Wife's Vanguard IRA - please help

Post by aristotelian » Sat Jun 02, 2018 4:04 pm

If you do Roth, you don't report anything to IRS, so you would not be notified of anything. Looks like your best bet may be to submit 1040x for the years you did not claim the deduction. Good news is, you should get some money back.

Jablean
Posts: 250
Joined: Sat Jun 02, 2018 2:38 pm

Re: Major Issue with Wife's Vanguard IRA - please help

Post by Jablean » Sat Jun 02, 2018 5:45 pm

Is her IRA just 5 years old or did you transfer it from elsewhere?

User avatar
Epsilon Delta
Posts: 7430
Joined: Thu Apr 28, 2011 7:00 pm

Re: Major Issue with Wife's Vanguard IRA - please help

Post by Epsilon Delta » Sat Jun 02, 2018 6:06 pm

This is why you read statements and keep your own records. I take it you don't have any copies of 1099s, 5498 or account statements in your own files? If you don't have anything saying this was a Roth I think you are unlikely to get any sympathy from Vanguard.

If it turns out this has been a traditional IRA all along:

An alternative to filing 1040Xs to take deductions for years when contributions were made is to file 8606's for those years to establish basis and then converting to a Roth (a delayed backdoor Roth). You'll pay tax on any growth. Also this won't work well if your wife has other traditional IRAs.

PFInterest
Posts: 2118
Joined: Sun Jan 08, 2017 12:25 pm

Re: Major Issue with Wife's Vanguard IRA - please help

Post by PFInterest » Sat Jun 02, 2018 6:11 pm

abs9986 wrote:
Sat Jun 02, 2018 9:45 am
I recently was checking my account balance via Mint and noticed that my wife's Vanguard IRA was showing as traditional rather than roth - Vanguard's site shows the same. I am like 99.999% sure that her account was set up as a roth, not traditional. I even checked the tax forms for the previous 5 years (2013 - 2017) on vanguard and they all show as traditional. There is no way I could I have missed this between checking my account balances monthly, the fact that my IRA is a roth, and doing taxes every year.

I plan to call vanguard first thing Monday. Has this ever happened to anyone else? If for some reason my wife's accounts were set up as traditional the past 5 years (again very unlikely), do we have any recourse to change our taxes? In turbotax, my wife's IRA was declared as roth so we obviously did not get the tax break. Again, I would thank the IRS would flag that if vanguard submitted as traditional and I submitted as roth on tax form.
I don't think anyone has filed 6 years of taxes and thought to blame the custodian, no.

chessknt
Posts: 70
Joined: Wed Jul 13, 2016 3:15 am

Re: Major Issue with Wife's Vanguard IRA - please help

Post by chessknt » Sat Jun 02, 2018 6:12 pm

Even if there was a mistake it was long ago and has been missed for many years. Fixing it is going to be a gargantuan undertaking--is it worth it? How big is the balance? Were you eligible for ira deductions and never took them? Someone more knowledgeable may be able to comment on a backdoor Roth tactic since this is presumably all post tax money.

mouses
Posts: 3645
Joined: Sat Oct 24, 2015 12:24 am

Re: Major Issue with Wife's Vanguard IRA - please help

Post by mouses » Sat Jun 02, 2018 6:16 pm

I don't understand this. Every month when I update my offline records, I update the Roth section and the Traditional IRA section, and I am staring at the websites' accounts' titles.

I also save all the paperwork.

Are you alleging Vanguard went into the records sometime between now and when you last did your taxes and changed all the records to Traditional? In what seems to be the unlikely chance this happened, do you have paper copies of your statements saying this is a Roth?

Do you at least have the initial paperwork?

abs9986
Posts: 55
Joined: Sun May 20, 2012 7:25 pm

Re: Major Issue with Wife's Vanguard IRA - please help

Post by abs9986 » Sun Jun 03, 2018 9:25 am

Let's say that I was wrong and the account from 2013 - present was in fact a traditional IRA. The total account balance today is ~$40K.

We have never taken the deduction on any of our taxes (2013 - 15 my wife filed single; 2016, 17 we filed jointly since we were married)

Can we either:

1. Amend our taxes to get the deduction from all previous years or
2. Convert to a Roth IRA since we never took the deduction (tax implications?)

Which would be the better option?

NYnative
Posts: 382
Joined: Thu Mar 01, 2007 10:41 am

Re: Major Issue with Wife's Vanguard IRA - please help

Post by NYnative » Sun Jun 03, 2018 9:33 am

I believe the first thing you should do is log directly into your wife's Vanguard account (it's not yours - there is no co ownership of IRAs) and see how the account is characterized. I don't know much about Mint, but it may be like Morningstar - which means it shows accounts, balances and lots of other info, but not whether the account is a Roth, Traditional or non-deductible. I have all 3 with VG and each is clearly marked for what it is. Go to the source and see what it shows. I save, electronically, a copy of every statement, so there is never a question later on.

jebmke
Posts: 8281
Joined: Thu Apr 05, 2007 2:44 pm

Re: Major Issue with Wife's Vanguard IRA - please help

Post by jebmke » Sun Jun 03, 2018 9:40 am

NYnative wrote:
Sun Jun 03, 2018 9:33 am
I believe the first thing you should do is log directly into your wife's Vanguard account (it's not yours - there is no co ownership of IRAs) and see how the account is characterized.
Unless he is authorized as her agent to do this it would be a violation of the VG terms. He can have her log in and look at the info after she has done that. I often do that with my wife when we need to adjust our overall accounts.
When you discover that you are riding a dead horse, the best strategy is to dismount.

retiredjg
Posts: 33579
Joined: Thu Jan 10, 2008 12:56 pm

Re: Major Issue with Wife's Vanguard IRA - please help

Post by retiredjg » Sun Jun 03, 2018 9:40 am

abs9986 wrote:
Sun Jun 03, 2018 9:25 am
Let's say that I was wrong and the account from 2013 - present was in fact a traditional IRA. The total account balance today is ~$40K.

We have never taken the deduction on any of our taxes (2013 - 15 my wife filed single; 2016, 17 we filed jointly since we were married)

Can we either:

1. Amend our taxes to get the deduction from all previous years or
2. Convert to a Roth IRA since we never took the deduction (tax implications?)

Which would be the better option?
I do not believe you can amend all the way back to 2013. I think the limit is 3 years. And whether the contributions could be deducted now will also depend on eligibility. Not everyone can deduct IRA contributions.

If/when you check the old taxes you find there was not a deduction taken (look at line 32 to make sure), Forms 8606 can be filed now for back to 2013 and that money can be converted to Roth now.

Each year's contribution will have to be examined individually. Was I eligible to deduct? Did I deduct? Can I deduct it now? These things will have to be answered for each year and for each person. Things like marital status, income, and coverage by a plan at work will determine the answer to each one and the answer may be different for spouses even in one year.

This is worth doing. People here can help you.

jebmke
Posts: 8281
Joined: Thu Apr 05, 2007 2:44 pm

Re: Major Issue with Wife's Vanguard IRA - please help

Post by jebmke » Sun Jun 03, 2018 9:42 am

Three years is max. So that would be 2017, 2016 and 2015.
When you discover that you are riding a dead horse, the best strategy is to dismount.

ShadowRegent
Posts: 48
Joined: Sun Jan 04, 2015 12:52 pm

Re: Major Issue with Wife's Vanguard IRA - please help

Post by ShadowRegent » Sun Jun 03, 2018 9:43 am

abs9986 wrote:
Sun Jun 03, 2018 9:25 am
Let's say that I was wrong and the account from 2013 - present was in fact a traditional IRA. The total account balance today is ~$40K.

We have never taken the deduction on any of our taxes (2013 - 15 my wife filed single; 2016, 17 we filed jointly since we were married)

Can we either:

1. Amend our taxes to get the deduction from all previous years or
2. Convert to a Roth IRA since we never took the deduction (tax implications?)

Which would be the better option?
It is too late to amend taxes and receive a refund for 2014 and prior. You can still amend for 2015, 2016, and 2017 to claim the deduction (if you are otherwise eligible), but you will then have non-deductible IRA contributions for 2013 and 2014. I think you have 2 options:
  • You keep all years as non-deductible IRAs. You should file form 8606 for 2013, 2014, 2015, 2016, and 2017. If your wife has no other IRAs, you can then convert the entire IRA to a Roth IRA. You will owe taxes on the earnings, and this may be your best bet if the earnings are not substantial. If your wife does have other traditional IRAs, you would need to either convert them as well (and pay taxes) or roll them into a 401(k) to avoid being left with non-deductible contributions as the conversion is subject to the pro-rata rule.
  • You amend your tax returns for 2015, 2016, and 2017 to claim the deduction (if you are eligible). You should file form 8606 for 2013 and 2014 for the non-deductible contributions during those years and also file form 8606 for 2015, 2016, and 2017 for the 2013 and 2014 non-deductible contributions that are still in the account. You will continue to have non-deductible contributions from 2013 and 2014 and you will pay tax on part of your withdrawals when withdrawing because you have basis in the IRA. You must file form 8606 each year until you no longer have a non-deductible IRA.

tomd37
Posts: 2835
Joined: Thu Mar 01, 2007 10:39 pm
Location: Middle Tennessee

Re: Major Issue with Wife's Vanguard IRA - please help

Post by tomd37 » Sun Jun 03, 2018 9:45 am

abs9986 - Please get back to us after your wife as the owner of the IRA has contacted Vanguard and give us the true details of the account. I believe if it was in fact a traditional IRA she cannot amend her tax returns for any year prior to 2015 as there is a three year limitation. For what calendar years did she actually make a contribution each year?
Tom D.

NYnative
Posts: 382
Joined: Thu Mar 01, 2007 10:41 am

Re: Major Issue with Wife's Vanguard IRA - please help

Post by NYnative » Sun Jun 03, 2018 11:42 am

jebmke wrote:
Sun Jun 03, 2018 9:40 am
NYnative wrote:
Sun Jun 03, 2018 9:33 am
I believe the first thing you should do is log directly into your wife's Vanguard account (it's not yours - there is no co ownership of IRAs) and see how the account is characterized.
Unless he is authorized as her agent to do this it would be a violation of the VG terms. He can have her log in and look at the info after she has done that. I often do that with my wife when we need to adjust our overall accounts.
And how would they know who is logging in? It's all from the same computer. And all our passwords are in a joint Dashlane account? On the phone, it has to be my wife, unless I can do a really good falsetto. But on the computer?? There is no way to tell. Rules are made to be broken.

User avatar
Epsilon Delta
Posts: 7430
Joined: Thu Apr 28, 2011 7:00 pm

Re: Major Issue with Wife's Vanguard IRA - please help

Post by Epsilon Delta » Sun Jun 03, 2018 11:54 am

jebmke wrote:
Sun Jun 03, 2018 9:42 am
Three years is max. So that would be 2017, 2016 and 2015.
It's three years from date of original filing. 2014 could still be open for a 1040X if he filed for an extension and filed after June 3rd 2015. But if he filed June 4th 2015 he would need to get the 1040X postmarked tomorrow :twisted:

User avatar
Epsilon Delta
Posts: 7430
Joined: Thu Apr 28, 2011 7:00 pm

Re: Major Issue with Wife's Vanguard IRA - please help

Post by Epsilon Delta » Sun Jun 03, 2018 12:21 pm

ShadowRegent wrote:
Sun Jun 03, 2018 9:43 am
[*]You amend your tax returns for 2015, 2016, and 2017 to claim the deduction (if you are eligible). You should file form 8606 for 2013 and 2014 for the non-deductible contributions during those years and also file form 8606 for 2015, 2016, and 2017 for the 2013 and 2014 non-deductible contributions that are still in the account. You will continue to have non-deductible contributions from 2013 and 2014 and you will pay tax on part of your withdrawals when withdrawing because you have basis in the IRA. You must file form 8606 each year until you no longer have a non-deductible IRA.[/list]
You must file form 8606 each year until you no longer have a non-deductible IRA
For these purposes you need to file a 8606 only for years you make a non-deductible contribution to, or withdrawal or conversion from a traditional IRA when you have non-deducted basis. If he amends the any of the 2015 - 2017 returns to fully deduct a years contribution there would be no known reason to also file an 8606 for that year. On the other hand it should be harmless to file the extra 8606s. On the other, other hand the unneeded 8606s would be pretty empty (lines 2 and 14 would be the only non-zero lines and would be identical).

you will pay tax on part of your withdrawals when withdrawing because you have basis in the IRA
That might be a typo (a missing "not" or "only"). It is technically correct, but the wording is infelicitous.

Having basis does not cause you to pay more taxes at a later date.

If you have no basis in a traditional IRA then all of your withdrawals will be taxable income.
If you have basis in a traditional IRA then only part of your withdrawals will be taxable income, since a fraction of each withdrawal is treated as non-taxable return of basis.

ShadowRegent
Posts: 48
Joined: Sun Jan 04, 2015 12:52 pm

Re: Major Issue with Wife's Vanguard IRA - please help

Post by ShadowRegent » Sun Jun 03, 2018 12:48 pm

Epsilon Delta wrote:
Sun Jun 03, 2018 12:21 pm
ShadowRegent wrote:
Sun Jun 03, 2018 9:43 am
[*]You amend your tax returns for 2015, 2016, and 2017 to claim the deduction (if you are eligible). You should file form 8606 for 2013 and 2014 for the non-deductible contributions during those years and also file form 8606 for 2015, 2016, and 2017 for the 2013 and 2014 non-deductible contributions that are still in the account. You will continue to have non-deductible contributions from 2013 and 2014 and you will pay tax on part of your withdrawals when withdrawing because you have basis in the IRA. You must file form 8606 each year until you no longer have a non-deductible IRA.[/list]
You must file form 8606 each year until you no longer have a non-deductible IRA
For these purposes you need to file a 8606 only for years you make a non-deductible contribution to, or withdrawal or conversion from a traditional IRA when you have non-deducted basis. If he amends the any of the 2015 - 2017 returns to fully deduct a years contribution there would be no known reason to also file an 8606 for that year. On the other hand it should be harmless to file the extra 8606s. On the other, other hand the unneeded 8606s would be pretty empty (lines 2 and 14 would be the only non-zero lines and would be identical).

you will pay tax on part of your withdrawals when withdrawing because you have basis in the IRA
That might be a typo (a missing "not" or "only"). It is technically correct, but the wording is infelicitous.

Having basis does not cause you to pay more taxes at a later date.

If you have no basis in a traditional IRA then all of your withdrawals will be taxable income.
If you have basis in a traditional IRA then only part of your withdrawals will be taxable income, since a fraction of each withdrawal is treated as non-taxable return of basis.
Yes, you're right that there's no need for the extra 8606s-- my mistake. And I meant that you'd only pay taxes on part of the withdrawal-- I didn't go into more detail there because I felt like my post was getting too long and forking down too many paths with too many hypotheticals. :happy

Post Reply